Publication Date

September 2002


Despite the widespread use of incentive pay, there is limited evidence about what factors influence its organization-wide, broad-based application. This study uses data from three sources and multiple levels, including a unique data set of the total compensation of individual employees in 104 firms over a four-year period (1997-2000), and theoretically and empirically examines the use of bonuses and stock options in organization-wide applications. We examine the efficacy of three main rational theories, principal-agency, positivist agency and contingency theories, which are based on the premise that incentives are related to performance. At the individual level we identify two determinants: type of job and level within the hierarchy and four determinants at the organizational level: performance, risk, size, and strategy. Our results indicate that the factors derived from the three theories provide a limited explanation for the variation in the use of broad-based incentives within and across organizations.


Suggested Citation
Marler, J. H., Milkovich, G. T. & Yanadori, Y. (2002). Organization-wide broad-based incentives: Rational theory and evidence (CAHRS Working Paper #02-05). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies.